Warren Buffett's Berkshire Hathaway $BRK.B since the last bull market in 2009, has been underperforming the S&P 500 $SPX500 but this year, the underperformance is more obvious than ever as the stock is down 7%. Warren Buffett is no longer in the top 5 of the richest people in the world. Recently Berkshire Hathaway reported earnings, let's have a look at the stocks that they are selling and buying.
The net income of Berkshire Hathaway compared to the same quarter for last year, increased from $14 billion to $26 billion. That's only because of the new accounting rules, which include unrealized capital gains as net income. In reality, these are not real profits. For example, Apple $AAPL stock price added a lot to the net income of the company but these profits would only make sense when Berkshire Hathaway actually sells the stocks. Nevertheless, if we look at free cash flow, we can see a slight increase despite fall in revenues.
There was a big $10 billion asset impairment expense from Precision Castparts, a company Berkshire Hathaway acquired in 2016 for $32 billion. Precision Castparts is a defense and aerospace company which recently laid off a third of its workforce. With lower demand in the aerospace industry (Precision is a supplier to Boeing), this asset impairment had to be made.
Berkshire Hathaway Energy is acquiring some of the midstream assets of Dominion Energy in a $10 billion transaction. The deal is still awaiting approvals. This is mostly a deal from Greg Abel and is a good once since this will help Berkshire Hathaway Energy consolidate their position as one of the largest Natural gas $NATGAS suppliers in the US. Natural Gas demand are expected to increase as people move away from more polluting coal and oil.
Warren Buffett is also buying Bank of America $BAC . The Fed recently allowed Berkshire Hathaway to own up to 25% of the bank without being classified as a Bank Holding Company. With Wells Fargo underperforming and Berkshire Hathaway selling all their shares of Goldman Sachs and trimming their position on JPMorgan Chase, it seems that Bank of America is the new Buffett Bank. Bank of America has been innovating and expanding its business in America recently.
The most important purchase of Berkshire Hathaway is its own shares. They bought back $5 billion in shares. The stock is trading about book value today and looks cheap. It is better to return money to shareholders like this till an elephant-sized deal is found.
As far as stocks Warren Buffett is selling are concerned, there are the airlines, Travelers Company and Goldman Sachs.
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